As Congress rushes to back bailouts, a senator cries foul

WASHINGTON — Depending on who you ask, Sen. Jim Bunning was either preternaturally prescient in his predictions of financial turmoil if government agencies kept bailing out privately owned businesses, or he's a prophet of fiscal doom who's slightly off the mark.

"Senator Bunning has been critical of the Federal Reserve system since God was a little boy. If he says it often enough ... eventually he'll look as if he's right," said Kenneth Troske, an economics professor at the University of Kentucky. "Having said that, his concerns currently about the actions that have been taken by the Fed and the administration are legitimate."

On Friday, the Bush administration and members of Congress vowed to work together to craft a historic bailout that lawmakers, along with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, said could total as much as $1 trillion. The Fed and the Treasury outlined proposals designed to shore up the economy by relieving lenders of bad mortgages, temporarily insuring money market funds and increasing cash flow to banks.

Bunning sees the actions as a move toward socialism.

"Instead of celebrating the Fourth of July next year, Americans will be celebrating Bastille Day," Bunning said. "The free market for all intents and purposes is dead in America.

"The action proposed today by the Treasury Department will take away the free market and institute socialism in America," Bunning said. "The American taxpayer has been misled throughout this economic crisis. The government on all fronts has failed the American people miserably."

It was the second time in less than a week that the junior senator from Kentucky blasted Federal Reserve and Treasury Department leadership. On Wednesday, Bunning criticized the Fed for an $85 billion bailout of insurance and finance giant American International Group; he introduced legislation that would strip the agency of its power to use taxpayer money in future bailouts.

"I have said on more than one occasion that I don't think the Federal Reserve can handle the powers they have, and this irresponsible bailout just proves my point," Bunning said earlier this week. "The only difference between what the Fed did and what Hugo Chavez is doing in Venezuela is Chavez doesn't put taxpayer dollars at risk when he takes over companies -- he just takes them."

Whether by luck or by design, Bunning's timing in forecasting the nation's economic downturn is uncanny. As Wall Street struggled to recover from an economic meltdown, cable network news stations such as Fox and CNBC and media outlets like the Wall Street Journal asked Bunning to opine on where things went so wrong.

He was happy to oblige.

Bunning, who sits on the Senate Finance Committee, has fumed over the past year at the nation's mortgage implosion and ensuing financial crisis, the rescue of Bear Stearns by the Federal Reserve and the government seizure of Fannie Mae and Freddie Mac. Bunning strongly prefers a free market approach and is adamantly opposed to what he sees as a trend toward federal handouts for big businesses.

A constant critic of Federal Reserve and Treasury leadership, Bunning raised the red flag on former Fed chairman Alan Greenspan's handling of the 1990s recession and felt the agency was slow to adjust to rate increases. Bernanke and Paulson's management of the current crisis is a frequent topic during Bunning's weekly telephone press conferences with reporters.

This time, however, Bunning is by no means alone in his criticism of the agencies.

In recent weeks, many lawmakers have begun to echo a question Bunning has often raised: Does the Federal Reserve have too much power?

"The actions of the administration have represented a fundamental change in the role the government is playing in the economy, and that change has occurred in a rather arbitrary fashion in order to find some way to stop the fall of the stock market and by scrambling to do something to prop up the country's financial security," Troske said.

"We've seen the largest nationalization of companies in the history of this country. ... If I were a member of Congress I would be upset, too," Troske said. "They are changing the role with very little discussion with other members of government."

Senate Minority Leader Mitch McConnell disagrees.

"A bailout is a pejorative term," he said. "A better way of looking at the actions that have been taken is that they are to protect the financial systems of the United States of America and all of the people who have 401ks and mutual funds.

"This is about the country's financial system as well as overseas because so much is interlocked now," he said. "And people can feel comfortable that we're going to act on a bipartisan basis and fix the problem."

For his part, Bunning says he's committed to holding the Fed and Treasury accountable — even if those efforts earn him the title of malcontent.

"My great-grandchildren will be saddled with the estimated $1 trillion debt left in the wake of this proposal," Bunning said. "We have gotten to this point because nobody has been minding the store. Both Secretary Paulson and Chairman Bernanke should be held accountable for their inaction. And now because of that inaction, the American taxpayer is left with the bill."